ENERGY Minister Franklin Khan disclosed that TT has earned approximately $7.7 billion in revenue over the last two years from a 12.5 per cent royalty imposed on upstream energy producers.
Khan was responding to a matter on the adjournment raised by Opposition Senator Wade Mark in the Senate on Tuesday.
He explained, "A royalty system is fundamental to the taxation of a non-renewable asset."
Oil and natural gas are classified as such assets.
Khan continued, "A royalty system is a taxation system based on volume, it is not based on profit. You cannot have a non-renewable source and tax it on profit."
He said, "You have so much write-offs against your capital expenditure. In fact, BP was in a position where they were producing one trillion cubic feet (tcf) of gas per annum and did not have a tax liability."
He recalled there has always been a 12.5 per cent royalty on crude oil in TT but no similar royalty for gas because it was previously considered a by-product of oil.
"We took the position that we will impose a 12.5 per cent royalty (on gas). It already existed on oil. We imposed it on gas."
Since this measure was imposed, Khan said, "From April 2018 to the end of fiscal year 2020, the Government has collected $7.753 billion. It is a valid taxation measure and it has worked well for this country."
He wondered why previous governments never imposed such a royalty, concluding, "The reason for that was because the aggregation business of the NGC (Natural Gas Company) was very large.' He observed, "Those were the days of cheap gas. You buy gas at x and then you sell at x plus three. So... your margin remains x plus n, where n could be from one to how much."
Khan added, "Once you are profitable, nobody looks at the fundamental construct of the taxation regime. It started to hurt when the volume dropped and the price dropped."
He said 65 per cent of TT's natural gas goes into LNG production and the remaning 35 per cent goes through the NGC to small light industries and particularly the Point Lisas Industrial Estate.
Focusing on the latter stream handled by the NGC, in the context of the royalty on gas, Khan said, "The NGC has two choices. Impose the additional charges on the downstreamers and collapse the whole of Pt Lisas, or find a mechanism to work it through."
Khan was happy to report that only upstream producers are subject to the royalty on gas.
He told Mark, "Your informants are not telling you the whole truth."
He also said the PNM has been correcting miscalculations in the energy taxation regime made under the former UNC-led PP government.
On a second matter raised by Mark, Khan said Government will not disclose gas prices negotiated with energy companies because it honours the sanctity of contracts and non-disclosure agreements relating to sensitive commercial issues.